Control of Manor at stake in court

Tuesday

Aug 21, 2012 at 12:01 AMAug 21, 2012 at 2:25 AM

In a legal fight over control of the Rogue Valley Manor, an attorney representing its board asked a judge Monday to grant a temporary restraining order preventing the Manor's managing organization, Pacific Retirement Services, from dismissing board members and its executive director.

By GREG STILES

In a legal fight over control of the Rogue Valley Manor, an attorney representing its board asked a judge Monday to grant a temporary restraining order preventing the Manor's managing organization, Pacific Retirement Services, from dismissing board members and its executive director.

Pacific Retirement Services has notified the Rogue Valley Manor board that it intends to remove "one or more" of its members at a meeting scheduled for Friday.

"We're asking for a stay of execution," McDermott told Arnold, "in order for the court to hear the merits of this action. All of that will be moot if they are allowed to take extra-judicial action and terminate the Manor board. Then it's game over and they win, not based on merit, but because they have exercised certain powers. We're asking the court to intervene."

After hearing from both sides, Arnold said he would issue a decision by Friday evening.

The Manor board is seeking to regain control of the senior living community. Board members say PRS was created by the Manor in 1991 to provide low-cost management services and to manage outside developments, but that it has instead taken total control of Manor operations and has charged exorbitant fees to Manor residents for its services.

The Rogue Valley Manor, incorporated in 1955, provides housing, medical services and other "life care" services to more than 960 residents in its facilities on Barneburg Hill in south Medford. More than 35 years later, PRS was created to provide management services, but also essentially became the parent organization of the Manor.

Attorney Robert Newell, representing PRS, told Arnold there was no supporting statute giving the Manor board authority to file suit because only PRS had voting rights. He said the Manor continues to be PRS' most valuable asset and that separation of the Manor from PRS would have consequences far beyond control of the retirement community.

He argued that $514 million worth of tax-exempt bonds issued by PRS would become taxable, leading to potential legal issues. He said the relationship between the Manor and PRS must be maintained in order to retain the bonds' tax-exempt status.

An injunction and separation could lead to extended legal battles involving PRS' bonds, Newell said.

"There's an argument that it's an act of default," he said. "If it went further, there would be a breech of confidence. If the bonds were no longer tax exempt ... that would mean shareholder litigation until the cows come home."

Beyond that it would hinder PRS from carrying out its long-term vision, he said. PRS now operates retirement facilities in numerous locations outside of Medford.

"We continue to believe the facts and the law support the position we have taken," said Brian McLemore, PRS chief executive officer.

Both sides alluded to arguments they might present should the case actually go to trial.

McDermott said a year-long investigation into the matter led the Manor board to take steps to remove the facility from PRS' control.

"We told this to PRS on May 1," he said. "What ensued over the next three months were a lot of negotiations, board to board meetings and counsel to counsel. Ultimately it got to impasse where PRS did not want to let Rogue Valley Manor return to its original state as an autonomous, independent non-profit corporation. They will not give up control they got in 1991 and the flow of money."

Within hours of the board's filing suit, PRS gave notice to Manor board members that at 6 p.m. Friday, Aug. 24, they all would be terminated. McLoughlin was put on administrative leave with Chief Operating Officer Mike Morris stepping into the role. Manor board members said PRS believed McLoughlin had provided information to them that hurt PRS' position, an allegation the board members denied.

McDermott said the Manor board in 1991 had no intention of creating an organization that would have power over Manor decisions and that PRS had taken on too much control.

"This was not a purchase, this was not an acquisition," McDermott argued. Rather, he said, it was a voluntary act for Rogue Valley Manor to create PRS to create efficiencies for the Manor.

"Over the next 21 years, PRS has taken control over the Manor in ways that are not to the benefit of Manor residents," McDermott said.

Newell, an attorney with the Portland office of Davis Wright Tremaine, declined comment following the hearing, as did Steven Rinkle, PRS' general counsel.

Before leaving an empty courthouse, McDermott said the underlying reason the board filed suit was because residents supported the action.